An excavator loads rare-earth minerals on to a truck at a quay at the Port of Lianyungang in eastern China's Jiangsu province, on November 4, 2012. Photo: AFP

In the complex framework of US-China relations, rare earth elements (REEs) play a significant role. We are talking about a group of 17 elements that test political waters because of their importance and application in strategic industries.

These elements are not only fundamental to the production of smartphones, superconductors, car batteries and computers but even fighter-jet engines and magnets for electronics and precision-guided munitions and missiles – to name a few examples.

This issue is not just emerging now. It has raised concerns among policymakers in the United States for years in light of the country’s dependence on Chinese exports, and the threat this could potentially represent for national security.

According to the Research Report on China’s Rare Earth Industry 2019-2023 published by Research and Markets, in 2017 China produced more than 80% of rare-earth metals in the world. These quite impressive data are an indicator of China’s domination in this industry, which is rooted in different factors.

First of all, geographically it concentrates more than a third of known reserves within its national borders. Second, Beijing has always put in place strategies and policies to support rare-earth companies financially in face of the high costs associated with the exploitation of these elements. Indeed, it must be said that the term “rare” does not refer to their difficult localization, but rather to their low concentration, which makes exploitation costs higher.

Third, lax environmental regulations compared with those implemented in Western countries have benefited China. When rare earths are processed, they can generate dangerously toxic and radioactive waste posing a threat to the environment.

Over recent weeks, the US government has renewed its focus on the domestic production of these elements in an attempt to reduce dependence on China.

In 2017, President Donald Trump signed Executive Order 13817, followed by a list drafted by the US secretary of interior that identified 35 critical commodities that are essential to the economic and national security of the US; have vulnerabilities along their supply chains; or have a fundamental function within the manufacturing industry.

In October, Trump signed another executive order to declare a national emergency in the mining industry, and stressed the importance of creating a new strategy for rare-earth minerals. In a note published on the official website of the White House, he also confirmed that the country has no domestic production for 14 of the minerals in the list.

In this context, in November, the US Department of Defense decided to invest $12.7 million in MP Materials, TDA Magnetics, and Urban Mining Company. These three national producers of REEs will receive governmental support to fund the construction of new processing and separation facilities.

The situation remains critical and constitutes another challenge that President-elect Joe Biden will have to deal with, balancing the country’s climate action plan with the need to secure the production of REEs.

Specifically, Biden has highlighted the importance of adopting electric vehicles to achieve substantial results in the fight against climate change. Nonetheless, as mentioned above, rare earths, along with cobalt and lithium, are fundamental to producing car batteries.

Even after putting in place partnerships with allies that are also producers of REEs, China will likely continue to occupy an important role for Biden’s agenda.

China could indeed exercise a certain degree of influence if Washington continues to be engaged in a tug-of-war with Beijing, making the geopolitical context even more tense.

In 2011, for example, China cut its export quotas for rare-earth minerals by 11% in the framework of bitter confrontation with the United States in relation to hot topics such as human rights, Taiwan and Tibet, and with Japan in relation to maritime disputes – even if the country declared that there were environmental reasons behind the decision.

This issue probably demonstrates how a complete US-China decoupling that the Trump administration has advocated is not really possible in this era of high-level interconnections among economies – or at least it is not possible without incurring consequences on both sides.

Federica Russo

Federica Russo is research lead at Navis, an executive search firm which takes an active role to improve how business leaders are selected. Previously, she was director of research at Wikistrat, a consulting firm helping Fortune 500 corporations and governments to brainstorm solutions and obtain an in-depth understanding of their landscape by using a crowdsourcing approach. She is currently based in Kuala Lumpur, Malaysia.